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hw22_23sol

# hw22_23sol - Problem 22 A B Incremental revenue Incremental...

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Problem 22 A. Incremental revenue \$113,150 Incremental expenses: Driver (64,800) Operating (19,400) Depreciation Depreciation (12,560) \$84,800 - \$22,000 Income before taxes 16,390 5 Income tax expense (5,737) Net income 10,654 Add depreciation 12,560 Operating cash flows \$23,214 B. Investing cash flows are all cash flows related to long term assets: Purchase of limo \$(84,800) Residual value 22,000 All costs necessary to get the asset ready to use [\$80,000+(80000*6%)] are included as part of the acquistion cost. 1-1-10 2011 2012 2013 2014 Annual operating cash flows \$23,214 \$23,214 \$23,214 \$23,214 Cost to buy machine \$(84,800) Salvage value Net cash flows \$(84,800) \$23,214 \$23,214 \$23,214 \$23,214 CF0 C01 C02 C03 C04 C. Time line: D. NPV \$20,697 This investment will earn the company a return on its cash flows that exceeds its minimum IRR 16.77% This investment will earn the company roughly 16.77% return on its cash flows during ea E. This investment is expected to earn about 16.77 cents of cash flows out of every dollar of assets inves The positive NPV indcates the investment will earn more than the minimum required return of 8.7% Problem 23 A. Incremental insurance savings \$18,100

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hw22_23sol - Problem 22 A B Incremental revenue Incremental...

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